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February 8, 2019

Raising State Income Tax Rates at the Top a Sensible Way to Fund Key Investments

Policymakers in several states are reviewing options to strengthen support for public investments crucial to state economies and residents’ well-being, such as quality early education, affordable college, and modern infrastructure. One way to raise the necessary funds is to raise personal income tax rates on the highest incomes, a policy choice sometimes referred to as a “millionaires’ tax.” This approach makes sense: evidence indicates it can generate substantial revenue for public investments that boost a state’s productivity in the long run, without harming economic growth in the short term.

High-income tax increases can generate substantial revenues for investments in people and communities that provide economic and social benefits over the long term

Real-world experience suggests that raising top income tax rates is unlikely to harm state economies in the short run, contrary to some claims.

The bulk of mainstream academic research finds that interstate differences in taxes, including differences in top personal income tax rates, have minimal effects on state economic growth.